HONG KONG MONETARY AUTHORITYHONG KONG MONETARY AUTHORITY

FATF Updates, FATF Updates,

Common AML Exam DeficienciesCommon AML Exam Deficiencies

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AML Supplement AmendmentsAML Supplement Amendments

29 September 201029 September 2010

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FATF Updates (1)FATF Updates (1)

• The FATF reviewing the standards for the 4th round of evaluations– RBA

– R.5, R.9, R.33 & R.34

– tax crime

– international co-operation

– cross border information exchange

– UNCAC

• Proposals to Plenary in October 2011

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FATF Updates (2)FATF Updates (2)

• Completed reviews– tax crime as a predicate offence

• existing predicate HK (sec. 82, Cap.122)

– domestic PEPs

• Obstacles to cross border information exchange– will review the sharing of STR information between group

entities

– obstacles: banking secrecy, tipping off, data privacy

– existing practice in certain jurisdictions

• Art.28 3MLD, Sec.333 POCA, FINCEN Note (20 Jan 2006)

– enhance group risk management

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FATF Updates (3)FATF Updates (3)

• Increased transparency of all wire transfers

– triggered by cover payments issue

– review of SR VII

– mandatory beneficiary information

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Common AML Exam Deficiencies (1)Common AML Exam Deficiencies (1)

• Sanction screening “blind spots”

– connected parties not screened at account opening

– no ongoing screening of connected parties

– rescreening only upon specific transaction basis

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Common AML Exam Deficiencies (2)Common AML Exam Deficiencies (2)

• Initial CDD on corporates

– failure to verify still exists/registered (i.e. not wound-up, dissolved, struck-off, suspended, etc.)

– insufficient information regarding ownership & control structure

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Common AML Exam Deficiencies (3)Common AML Exam Deficiencies (3)

• Ongoing review

– implementation issues - failure to adequately define what constitutes a “trigger event”

– no evidence reviews on “trigger event” undertaken

– no efforts to verify no change in ownership/control of a corporate

– confirm corporate still exists/registered (i.e. not wound-up, dissolved, struck-off, suspended, etc.)

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Common AML Exam Deficiencies (4)Common AML Exam Deficiencies (4)

• Correspondent banking

– no due diligence on SWIFT / BKE authorisation exchange for payment purposes

– blanket adoption of due diligence performed by head office

– no risk assessment & enhanced monitoring of higher risk relations

– no periodic review of due diligence

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• Amendments published in July 2010

– address the issues raised in the FATF MER

– better reflect international standards

• Effective date 1 November 2010

AML Supplement AmendmentsAML Supplement Amendments

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Address verification• record and verify the address of direct

customer

• record the address of all connected parties and verify on the basis of risk & materiality

Directors• identify all directors

• verify the identity of at least one (previously two)

• verify additional directors on the basis of risk & materiality

Amendments (2)Amendments (2)

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Amendments (3)Amendments (3)

Non account holder transactions

• CDD on all transactions $120,000 or more (single/ multiple operations with obvious connection)

• identify and verify customer and beneficial owners

• wire transfers $8,000 or more - verify originator’s identity

• currency exchange $8,000 or more - verify customer’s identity

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Third party Reliance

• restricted reliance on domestic intermediaries to – AIs, LCs, IAs – lawyer, auditor, accountant, trust company and cha

rtered secretary

• restricted reliance on overseas intermediaries to – FIs, lawyer, auditor, accountant, tax advisor, trust c

ompany and chartered secretary, – from an equivalent jurisdiction,– regulated and supervised for AML compliance

Amendments (4)Amendments (4)

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Politically Exposed Persons

• appropriate system to determine whether the customer/connected parties are politically exposed at – a/c opening & on periodic basis thereafter

– e.g. periodic screening against commercial electronic database

• senior management approval for continuing business relationship with individual subsequently found to be politically exposed

Amendments (5)Amendments (5)

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Ongoing Review

• high risk customers on an annual basis

• standard risk customers on “trigger event” basis

• “trigger event” to be clearly defined

Amendments (6)Amendments (6)

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Thank You